Article excerpt

Byline: ANTHONY HILTON

COLIN Melvin, chief executive of Hermes Equity Ownership Services, was yesterday quoted in a press release as saying: "We should promote transparency within investment markets. A lack of transparency results in investment products and behaviours which are inappropriate or harmful to interests of investors (including pension funds, representing the retirement savings of millions)." Hermes, for those not familiar with the group, is the manager of the British Telecom pension fund and a few bits of others besides, and has [pounds sterling]50 billion under management, making it the largest single pension fund group in the UK. It has taken its responsibilities seriously, and for many years has been a pioneer in matters of corporate governance and activism hence Melvin's comments.

Recently, though, it has shown an alarming susceptibility to gimmicks.

Last year, it announced plans to relaunch some of its funds and activities as boutiques in which its star managers would have a stake. The claim was that giving them a financial interest would align them with their investors, though it stopped short of saying that it would in some magical way also make them better fund managers. In fact, it was the business interests of Hermes rather than the interests of its investors that drove the decision. It feared that if it did not do something like this, its best people would disappear to run hedge funds.

It should have let them go. One of the nice things about Hermes in the days when it was run by Tony Watson was that it did not believe in the cult of the star manager, and firmly resisted pandering to their overblown egos. Deviating from this policy, as it has since his retirement, has proved predictably disastrous.

The Hermes European Focus Fund, which was the test bed for turning Hermes into a big tent of investment boutiques, has halved in value in a year.

The star fund managers who were incentivised to run it as if doing so with their own money are to depart, presumably with the kind of compensatory pay-off that can only be envied by those whose money it actually was.

This neatly highlights the fakery inherent in such so-called alignment of interests.

One wonders how this initiative fits with Melvin's initial comments about "investment products and behaviours which are inappropriate or harmful to the interests of investors". It is all very well for fund managements to call corporate managements to account, but what is sauce for the goose should be sauce for the gander. …

The Contrasting Policies of the FCC and FERC regarding the Importance of Open Transmission Networks in Downstream Competitive MarketsReiter, Harvey.
Federal Communications Law Journal, Vol. 57, No. 2, March 2005